Wall Street wanted clear election winners. Expect volatility until then.

with Brent D. Griffiths

Wall Street and everyday Americans of all stripes could agree on this much heading into the election: They wanted to wake up this morning to decisive results.

But the wait will go on, reintroducing the possibility of market-roiling uncertainty for investors who over the last week began pricing in a big Joe Biden victory.

Driving home the risk of an ugly fight over the results, President Trump falsely declared he had already won the election during a speech from the White House’s East Room early Wednesday. The president said he intends to take a legal challenge to the Supreme Court, though as The Post notes, any challenge of state procedures and practices would have to be filed in lower-level courts. 

With millions of votes still to be counted, Trump falsely asserts fraud and makes a claim of victory

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Dow futures dove 1.5 percent in the wake of Trump’s comments before regaining much of that ground. Pre-market trading remained choppy this morning.

The fate of the presidency has come down to just a handful of states that remain too close to call



map: (Graphic by Washington Post staff) As of 7:20 a.m.


(Graphic by Washington Post staff) As of 7:20 a.m.

Meanwhile, the Democratic path to a Senate majority has narrowed. Republicans held off Democratic challengers in South Carolina and Texas while building leads in North Carolina and Iowa, Seung Min Kim and Paul Kane report. “Democrats successfully took out Republican Sen. Cory Gardner in Colorado and appeared to be on track to win Arizona, although the GOP picked up a seat of their own in Alabama and appeared to diminish the prospects of a Democratic majority as results continued to roll in early this morning.”



map: (Graphic by Post staff)


(Graphic by Post staff)

Even as the vote-counting continues, market analysts are pointing to Democrats underperforming the polls.

And they are downgrading chances for a major economic relief package they had expected empowered Democrats to deliver.

“With Republicans still in charge in the Senate, we’d be surprised to see a stimulus bill early next year much in excess of $500 billion, far less than the $2 trillion we expected if Democrats had won,” Pantheon Macroeconomics chief economist Ian Shepherdson wrote in an early Wednesday note.

Similarly, Goldman Sachs economists write that if Republicans maintain their grip on the Senate, they expect “a fiscal stimulus package of less than $1 trillion. With a Democratic Senate, we would expect Congress to enact a fiscal stimulus package of at least double that size regardless of White House outcome, though the size could grow a bit further if Biden wins the White House (to $2.5 to $3 trillion).”

Bond traders appear to agree and are already pricing in diminished prospects for a major spending deal:



chart


Elsewhere, “with uncertainty hanging high, traders appeared to be reverting to some of the most trusted trades of the past few years: betting on technology stocks rising [and] currencies in emerging markets falling,” the Wall Street Journal’s Akane Otani, Gunjan Banerji and Amrith Ramkumar report. “Futures linked to the Nasdaq-100, which heavily weights shares of big tech companies, advanced 1.9%, after earlier darting higher so quickly that trading was briefly halted.”

Biden, in his own speech, urged patience. Investors may not heed the call.

Addressing his supporters after midnight, Biden cautioned that the results could come “as early as tomorrow morning but it may take a little longer.” And he expressed confidence that his campaign would pull out a victory. “Keep the faith, guys. We’re going to win this,” he said.

But “the market abhors uncertainty,” CIBC Capital Markets chief economist Avery Shenfeld says. And investors were banking on Election Day locking in a government “that will deliver a much-needed stimulus, and more broadly, a government that can take command over the covid situation.”

Market volatility has been drifting down since last Wednesday, as investors interpreted Biden’s steady polling lead as evidence he would defeat Trump decisively. Though election experts warned the results could take days, the team at Goldman, for one, wrote in a note to clients that “there is a good chance the presidential election outcome will be clear on election night.”

The Wall Street consensus held the challenger’s success brought with it the promise of a multitrillion-dollar stimulus. The thinking went that would provide renewed support to a slowing economic recovery, boosting stocks in the bargain.

The market had “gotten exuberant pricing in a Blue Wave outcome over the last few days,” Noel Dixon, global macro strategist at State Street Global Markets, tells me.

And investor optimism was keyed to such a Democratic sweep. “Historically, it’s a good outcome if there’s gridlock,” says Torsten Slok, chief economist at Apollo Global Management. “But that’s somewhat reversed at the moment. Gridlock would be bad news,” since investors are relying on Democrats to open the federal spigots for relief funds.



a person sitting in front of a computer: President Trump is seen on a TV screen as the German share price index DAX reacts to the 2020 presidential election at the stock exchange in Frankfurt, Germany. (Kai Pfaffenbach/ Reuters)


© Kai Pfaffenbach/Reuters
President Trump is seen on a TV screen as the German share price index DAX reacts to the 2020 presidential election at the stock exchange in Frankfurt, Germany. (Kai Pfaffenbach/ Reuters)

Yet investors don’t always know at first blush how the market will digest an election outcome.

Recall how markets convulsed after Trump’s shock win in 2016. “Pundits widely predicted a Trump victory would shave upward of 10% or 15% off the S&P 500,” the Wall Street Journal’s Akane Otani writes. “They seemed right for a few hours on election night—but by the close of the next trading day, stocks were higher.”

Luis Strohmeier, partner and wealth advisor at Octavia Wealth Advisors, notes that investors should take a longer view for their own portfolios.

When it comes to the market, “does it really matter who’s president? No, it doesn’t really matter,” Strohmeier says. “What really matters to the market is earnings. If companies perform and maintain dividends, the market will go higher, period.”

Or as we wrote here back in August, “The results of presidential elections are merely one input among many shaping how investors value companies.” This chart from Capital Group tells the story:



chart, histogram


Campaign 2020

Democrats will hold the House.

But it seems highly unlikely that they will significantly pad their majority: “Speaker Nancy Pelosi and House Democrats appeared on track to secure another two years in the majority. But as votes were being tallied late into the night, the party looked set to fall drastically short of its bullish predictions that it would cut deep into Trump country to grow its majority,” Rachael Bade, Juliet Eilperin, Steven Mufson and Amber Phillips report.

“Rather, several Democratic incumbents the party believed were secure found themselves suddenly out of a job. And GOP districts that Democratic leaders had been eyeing for months landed solidly in Republican control.”



chart, sunburst chart: (Graphic by Post staff) As of 7:20 a.m.


(Graphic by Post staff) As of 7:20 a.m.



a close up of Igor Bišćan holding a cell phone: Uber driver Sergei Fyodorov discusses why he supports a yes vote on Proposition 22 in October. (Josh Edelson/AFP/Getty Images)


© Josh Edelson/AFP/Getty Images
Uber driver Sergei Fyodorov discusses why he supports a yes vote on Proposition 22 in October. (Josh Edelson/AFP/Getty Images)

Uber and Lyft-backed California proposition passes easily.

The two companies pushed back on gig economy regulations: “Uber, Lyft and the delivery service DoorDash designed the measure to exempt the companies from a state labor law that would have forced them to employ drivers and pay for health care, unemployment insurance and other benefits. As a concession to labor advocates, the initiative offers a wage floor and limited benefits to drivers,” the New York Times’s Kate Conger reports.

“The vote resolves the fiercest regulatory battle Uber and Lyft have faced and opens a path for the companies to remake labor laws throughout the country. The fight pit labor groups and state lawmakers against ride-hailing and delivery start-ups that spent $200 million in support of the measure.”

Florida votes to raise minimum wage to $15 an hour.: “The 2020 election ballot initiative garnered the 60 percent support needed to pass, according to the Associated Press. Florida becomes the eighth state to approve such an increase …,” Jacob Pramuk reports.

“John Morgan, a wealthy personal injury attorney, put millions of dollars into the effort to get the initiative on the 2020 ballot.”

Nebraska became the latest state to cap payday lending rates: “The state voted overwhelmingly for a ballot measure capping payday loans at a 36 percent annual interest rate,” the Omaha-World Herald’s Martha Stoddard reports.

“The outcome for Initiative 428 never appeared in doubt. With the new law, Nebraska will join 16 other states that have similar limits on payday lending costs or prohibit the practice altogether … Kent Rogert, a lobbyist for the Nebraska Financial Services Association, said he had no immediate comment on the election outcome. However, he said the industry group will consider its legal options this week, meaning the measure may not be out of the woods.”

Companies ban work travel, warn of unrest: “Top executives at consulting firms, airlines, health care companies and others have sent notes to employees in recent days, some with strikingly different messages than in previous elections,” the Wall Street Journal’s Collin Eaton and Rebecca Elliott reported before Tuesday night.

“Some employers, like Seattle construction and engineering company McKinstry Co. LLC, banned work travel and urged employees to stay home this week, while others shared corporate-security hotlines for employees to call if they feel unsafe. The efforts reflect anxiety across the corporate sphere, where many executives worry how their operations might be affected should widespread protests or election-related violence occur.”

  • Some companies are even setting up temporary locations: “United Airlines Holdings Inc. has moved its operations center from its downtown Chicago headquarters to a backup location, in anticipation of potential protest activity preventing employees from traveling into the city, the airline said.”

Coronavirus fallout



a large ship in a body of water: The Carnival Pride cruise ship arrives at PortMiami in April. (Lynne Sladky/AP)


© Lynne Sladky/AP
The Carnival Pride cruise ship arrives at PortMiami in April. (Lynne Sladky/AP)

  • Pandemic wasn’t top priority for voters: “The dismal state of the economy beat out the pandemic as the top concern of voters surveyed in early exit polls Tuesday, while public health experts warned that the outcome of the election was unlikely to change the trajectory of the difficult weeks and months ahead. More than a dozen states shattered records for hospitalizations, while a new study showed an unprecedented surge in infections among children,” Antonia Noori Farzan and Rick Noack report.
  • Cruise industry will extend suspension through Dec. 31: “The Cruise Lines International Association (CLIA) said its members will use the remainder of the year to prepare for the implementation of measures to address covid-19 safety issues.The Centers for Disease Control and Prevention on Friday issued a framework for a phased resumption of cruise ship operations after a no-sail order issued in March in response to the pandemic was to expire on Saturday,” Reuters’s David Shepardson reports.
  • Natural gas drillers outshine oil: “Oil-focused fracking companies are under extreme financial strain, as renewed concerns about the pandemic are weighing down crude prices. But gas-focused drillers are getting a long-awaited reprieve. Natural-gas prices are climbing ahead of winter, and are less sensitive to lockdowns that erode demand for transportation fuels,” the WSJ’s Collin Eaton and Rebecca Elliott report.

Pocket change



The Comcast logo. (Jeff Fusco/Comcast via AP Images)


© Jeff Fusco/AP
The Comcast logo. (Jeff Fusco/Comcast via AP Images)

Comcast and Walmart are in talks to develop smart TVs.

The nation’s largest retailer continues to branch out: “Under the terms the companies are discussing, retail giant Walmart would promote TV sets running Comcast software, and would get a share of recurring revenue from Comcast in return, the people said. A third party would likely manufacture the sets, and one possibility is that they could carry Walmart branding …,” the WSJ’s Lillian Rizzo and Patience Haggin report.

“The strategy would enable Comcast to market to consumers nationwide, a change in a U.S. cable industry where players have stuck for decades to their regional footprints. Comcast would be able to promote its new streaming service, Peacock, front and center in the smart TVs …”

Daybook

Today:

  • The Fed’s FOMC begins its two-day meeting

Thursday:

  • Fed chair Jay Powell meets the press after the FOMC meeting
  • The Labor Department reports weekly jobless claims

Friday:

  • The Labor Department releases the monthly jobs report

The funnies

Bull session

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